SEC Cautions Investors on Risks of Buying Reverse-Merger Stocks

The U.S. Securities and Exchange Commission cautioned investors about buying stakes in companies that gain listings on U.S. exchanges through so-called reverse mergers, saying they may be prone to “fraud and other abuses.”

Many of the companies, often overseas operations that access U.S. markets by acquiring publicly traded firms with few or no operations, “either fail or struggle to remain viable” and may use small audit firms that don’t verify financial statements, the SEC said today in an investor bulletin.